Poverty premium is a term that means so much more than being charged more for certain products and lack of credit history; it can also equate to digital exclusion.
With an increasing focus on environmental, social and governance (ESG) agenda, banks do not wish to be seen to be as socially irresponsible. Regulators and authorities are increasingly turning their attention to these issues as well, understanding that the poverty premium is a roadblock to regional and national economic progress.
Banks therefore need to find ways to offer more nuanced services, so that fair banking is open and accessible to everyone. And this ultimately works to their advantage as well. Not all of the demographic that is let down by digital services is poor - think millennials without a credit history, or older baby boomers who aren’t digitally savvy- but by being unbanked or excluded from the system, can easily follow a downward spiral and end up badly off.
There is scope and opportunity for banks to provide digital educational and coaching services as well, to bring people on board, better educate them and of course, avoid certain pitfalls. With shrewd capturing, processing and analysis of data and technology, banks can take the lead by addressing the tired bias that exists in traditional credit decisioning models against certain credentials or attributes, which is often a result of programming by human bias.
Through open banking and shared data, particularly as this theme trickles into other sectors such as energy, insurance and healthcare, fintech startups and neobanks are already driving change in this respect.
Download your copy of this Finextra white paper, produced in association with Cognizant, to learn more.
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